US-China Strategic Recalibration: Context and Implications for India

Since 2023, the bilateral relationship between the United States and China has entered a phase of strategic recalibration marked by heightened competition and selective engagement. This shift is driven by economic decoupling trends, intensified geopolitical rivalry in the Indo-Pacific, and global supply chain realignments. India, sharing complex ties with both powers, faces a critical juncture to adapt its foreign policy, economic partnerships, and security architecture to safeguard its national interests amid these dynamics.

India’s bilateral trade with China was approximately USD 125 billion in 2023 (Ministry of Commerce & Industry, 2024), while trade with the US reached USD 119 billion with a 15% annual growth rate (USITC Data, 2024). The Defence budget allocation of INR 5.94 lakh crore in 2023-24 (Union Budget, 2023-24) reflects India’s response to regional security challenges, especially vis-à-vis China. The recalibration between the US and China necessitates a calibrated Indian response across diplomatic, economic, and security domains.

India’s Constitutional and Legal Framework Governing Foreign Relations

Article 253 of the Indian Constitution empowers Parliament to enact laws to implement international treaties, providing a legal basis for India’s engagement with global powers. The Foreign Exchange Management Act (FEMA), 1999 regulates cross-border economic transactions, relevant for managing trade and investment flows with the US and China. The Defence of India Act, 1962 enables the government to take extraordinary security measures amid geopolitical tensions, underpinning India’s defence posture.

Judicial precedents such as S.R. Bommai v. Union of India (1994) affirm the central government’s exclusive prerogative in foreign policy, ensuring executive coherence in navigating complex international relations. These constitutional and legal provisions equip India to respond flexibly to the evolving US-China dynamics while maintaining sovereign decision-making.

Economic Dimensions: Trade, Investment, and Technological Dependencies

India’s trade with China remains significant but shows signs of cautious decoupling. Exports to China contracted by 5% in 2023, while exports to the US grew by 18% (Ministry of Commerce, 2024). FDI inflows from the US stood at USD 7.5 billion in 2023, contrasting sharply with a decline to USD 1.2 billion from China (DPIIT Data, 2024). This reflects growing geopolitical distrust and India’s strategic pivot towards the US.

• India’s defence budget of INR 5.94 lakh crore (2023-24) prioritizes modernisation to counter China’s military assertiveness.
• The NITI Aayog’s target to scale semiconductor manufacturing to USD 20 billion by 2030 aims to reduce dependence on Chinese supply chains, addressing a critical vulnerability in electronics and pharmaceuticals.
• India’s over-reliance on China for critical raw materials and intermediate goods exposes structural risks that diversification and the Make in India initiative have yet to fully mitigate.

Security Architecture and Strategic Autonomy Amid US-China Rivalry

India maintains a policy of strategic ambiguity, balancing its relations with the US and China without formal alliance commitments. Unlike Australia, which explicitly aligns with the US-led Indo-Pacific strategy, India’s approach avoids overt confrontation while enhancing defence cooperation with the US.

India’s defence research and indigenous capability development through the Defence Research and Development Organisation (DRDO) is central to reducing technological dependence. The 15% annual growth in India-US trade and defence ties reflects a gradual tilt, but India continues to engage China diplomatically to manage border tensions and economic interests.

Comparative Analysis: India vs Australia in Managing US-China Dynamics

Five Imperatives India Must Keep in Mind

1. Enhance Strategic Autonomy: Avoid entanglement in US-China rivalry by maintaining independent decision-making in foreign policy, leveraging Article 253 and executive powers.
2. Deepen Economic Diversification: Accelerate efforts to reduce dependence on China for critical inputs, especially in pharmaceuticals and electronics, through targeted FDI policies and supply chain restructuring.
3. Strengthen Defence Modernisation: Prioritise indigenous defence R&D via DRDO and increase budget allocations to counterbalance China’s military capabilities.
4. Expand Multilateral Engagements: Leverage Quad and Indo-Pacific frameworks to enhance diplomatic and security cooperation without compromising bilateral ties.
5. Leverage Trade Growth with the US: Capitalise on the 15% annual growth in India-US trade by negotiating favourable trade agreements and encouraging US investments aligned with India’s strategic sectors.

Way Forward: Concrete Policy Measures

• Implement robust legal frameworks under FEMA and trade laws to regulate and screen Chinese investments, ensuring national security.
• Invest in semiconductor and critical technology manufacturing to meet the USD 20 billion target by 2030, reducing technological dependencies.
• Enhance intelligence-sharing and joint military exercises with US and Quad partners to deter Chinese aggression.
• Use diplomatic channels to manage border disputes while pursuing confidence-building measures with China.
• Promote export diversification to reduce economic vulnerability from China-centric supply chains.